Amendment of Law

Ways and Means – in the House of Commons on 26th April 1944.

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Question again proposed, That it is expedient to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance."—[Sir J. Anderson.]

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

We were indebted to the Chancellor of the Exchequer yesterday for a most interesting statement, delivered with his accustomed great knowledge and authority. The feature of that speech which most impressed me was his concentration on the development of the country after the European war has concluded. Of course, the right hon. Gentleman was careful to make no phophecy as to the manner and the date of the end; of course, he warned us against the slightest relaxation of the war effort; of course, he made no appreciable reduction in the estimate of the required Votes of Credit. In common, I imagine, with every other Member of the Committee I should have been most critical of his speech if he had followed any other approach to the problem before him. But the fact remains that the Chancellor did devote a considerable part of his speech to the postwar situation and, further, that the only substantial changes in his Budget were directed to helping post-war recovery. In other words, although he told us at the end that it was a case of "the mixture as before," he contrived to slip in a prescription for a little bottle of tonic intended for our convalescence, and hinted that when he paid us his next professional visit, a year hence, he might prescribe for us a different medicine altogether.

Before coming to the concrete Budgetary proposals, there are two other points on which I would like to touch. In the first place, the Chancellor of the Exchequer took note of the rise in wages, salaries and other costs, and he told us that in consequence, although not abandoning the principle of holding down the cost of living, he proposed to apply it a little less rigidly and to allow the index to rise a few points. I question the wisdom of that course and, in particular, do I question the ground on which the right hon. Gentleman considers it desirable. In the last war wages chased prices, with an inflationary result, and it would be thoroughly bad if, in this war, the cost of living were to chase wages. To be fair to the Chancellor of the Exchequer, I am not suggesting that he indicated that that was his intention, but I think he did give some indication that that line of thought was influencing him in his action. There might be some justification for this course if personal consumption, in terms of fixed prices, was actually rising, but from the White Paper that the Chancellor has himself issued, that is demonstrated not to be true. On page 8 of the "Analysis of the Sources of War Finance," in table C.2, line 3, it will be found that the expenditure of the public on consumption, in terms of fixed prices, has been steadily falling throughout the whole period of the war, and during the last three years, to which the Chancellor himself made reference, it has been represented by the figures 88, 82, 81 and 79 respectively. Therefore there is no suggestion, from the figures in this White Paper, that the public have been pressing increasingly upon the provision of commodities.

The reason is, of course, that while the cost of living has been stationary in the last three years, retail prices have substantially risen. The figures given in the White Paper show that they have risen from 118 in 1940, to no less than 141 during last year, and this rise is reflected in the larger cost of living which the public have to face in dealing with their expenditure. In other words, the fact that goods are rationed, that the definite necessaries of life included in the cost-of-living index have remained stationary, has not meant that a household, in order to meet its daily expenditure, is not compelled to pay more to-day than it paid three years ago. That is the common experience of the bulk of the people. Therefore, I say, and I say it with the very strongest desire to prevent inflation, that I think the course the Chancellor has announced will not help to prevent inflation but rather the reverse. If wages have gone up in response to the increase in the full cost that people have to bear, if the Chancellor, in consequence of that, desires to put up the cost of living, then I think we shall get an infla- tionary spiral in this war similar to the one we had in the last war when, as I have said, wages were perpetually chasing the cost of living.

As regards those who are not wage-earners or soldiers but who have fixed incomes, many of them small fixed incomes, I venture to suggest that if the Chancellor allows the cost-of-living index to rise, he is taking a step which the Government, up to now, have most scrupulously avoided. We have only recently had before us the Pensions (Increase) Bill and we have not yet got through all its stages. The Chancellor based his proposals in that Measure on the supposition that the cost of living showed a certain increase over pre-war years. In so far as he ceases to hold the increase at the present figure, then his proposals lose part of their meaning and might impel some of us to demand a greater change than we have accepted in the provisions of that Bill.

I do not want to exaggerate what the Chancellor may do. As I understand it, both from his speech here yesterday and his speech in the evening to which I listened with great interest, he does not propose to make any very wide change. I do not consider a rise of one or two points a matter of very great significance. It is the principle which I regard as a matter of significance, and if the Chancellor comes to us and says that owing to a rise in wages he feels it only right and proper to raise the cost of living, and bases his action on that principle, then I shall venture to disagree with him and to ask him to think again, because I do honestly believe that so far from having a deflationary effect, which is what he would like, it might well have an inflationary effect, which he would regret. If he persists in his action, I hope he will at any rate keep it within the very narrowest limits, so that it will not have the consequences which I fear.

The other matter to which he referred was the importance of the export trade after the conclusion of the war. I am not quoting his precise words, but I do not think I am misrepresenting him when I say that he said this would be dependent on the efficiency of industry after the war, and the skill and energy of the workers. Of course that is quite true, and I do not dissent from it in the very least; but I would remind him and the Committee that after the last war, there was no reason to doubt the efficiency of industry or the energy and the reliability of the workers. But a third factor intervened which was much more important, namely the action of the Bank of England and of the Government, supported by this House, in raising the exchange value of the pound above its proper level and, in the rising cost of money so that industry and labour were forced into the slump and unemployment and all the difficult conditions of the inter-war years. I am hoping, and I believe with justifiable confidence, that the lesson of that disastrous state of affairs has been learned and that the mistakes then made will not be repeated; but in view of the remarks of the Chancellor of the Exchequer, I have thought it not inappropriate to refer to that in what I have said to-day.

On this I will say one thing more. We have had presented to us, in the course of the last few days, a White Paper relating to currency and exchange. I am sure it is the intention of the Chancellor of the Exchequer, from the promises that he has already given, that we shall have an adequate opportunity of discussing the whole of that plan before the Government commit themselves to it in any way. That opportunity does not arise to-day, but will be for a more appropriate occasion, when we can go into the details and discuss them fully on their merits. I should be most unwilling, and it would be improper or my part, to discuss them now. I should like, however, to say a few words, not on the details but on the principles which should guide us, whatever plan may be accepted. First and foremast, in the post-war recovery, I place the prosperity, not of this country alone but of all countries of the world. Their prosperity can only be achieved if there is, in every progressive country, a progressive expanding economy. I think it is the duty of this country to do everything in its power to contribute to that world-wide advance, and that includes, of course, cooperation with other countries as far as we can go in order to achieve it. It will involve, at any rate up to a certain point, keeping step with other countries in their financial policy. But when I say that I feel it imperative to remark that it is essential that our own prosperity should be preserved.

The prosperity of our country after the war will depend upon certain things. It will depend upon cheap money, and it will depend upon the control of the price level so that it remains substantially constant over a period of years. One of the necessary factors in that is that we shall not be so tied up with other countries, that, if their price level fluctuates up or down, we shall necessarily be bound to allow our own internal price level to follow that undesirable fluctuation. It follows from that, that we must start by having a reasonable rate of exchange, and that our prices shall be, to some extent, insulated from being dragged along with the prices of other countries. If I may change the metaphor it may be necessary to have something corresponding to a half-tide lock, so that though we may like to follow the rest of the world within certain limits, when a limit has been reached we shall be free to keep our own head of water at the necessary level.

Finally, on this point, I should like to say that I am a great believer in bulk purchase. It has been a very successful operation during the war, and though I am quite prepared to admit that circumstances will be different after the war, I feel that bulk purchases, and to some extent bulk sales, may be a necessary feature of post-war economy. That will bring in a great many questions about the attitude of other countries, who may take exception to possible differences between the prices at which we sell goods elsewhere and those at which they are sold at home. It is a matter we shall have to consider carefully. To sum up, it is most important that we should act in a friendly and co-operative way with the other great countries—in fact with all the countries of the world—and particularly, of course, with our great neighbour with whom, we have worked so amicably during the war, the United States of America and also with our great ally the Soviet Union. It will be most unfortunate if we do anything which will estrange their sympathies with us in the financial and commercial world. But, at the same time, we must take no action, in response to their invitations, which will put us into a strait-jacket and prevent us from developing our own prosperity. I will not pursue that subject farther than that to-day. The application of those principles to the precise proposals in the White Paper will be properly reserved to the Debate when it comes.

Turning to the Budget proper, I should like, first, to add my thanks to those of the Chancellor of the Exchequer to the Government and people of Canada for repeating the generous economic help which they gave us last year. In that connection, I would only remind Members of the Committee, and others outside, that while the figures of the current Budget are comparable with those of last year, when the same method of helping us from Canada prevailed, they differ from those of the previous year when the Canadian contribution was given in a different form. As to the rest of the Budget, I think the decisions taken by the Chancellor to make no major change in taxation is a sound one. In fact, I may tell him that a few days before his Budget was announced, some Members of this House asked me what I thought was going to take place. I said that if I were the Chancellor of the Exchequer I should make no changes whatever, which only proves that great minds think alike. Such minor changes as he has made, I also approve of. I think that his proposal with regard to authors—which I have no doubt he carefully considered—although a small measure of relief, does straighten out a difficulty which existed in the past. I would only add that authors would be still more obliged to the Chancellor if he would help them to earn an income by getting his right hon. Friend, the Minister of Supply, to allow to publishers a slightly larger quota of paper. I understand the idea that the paper which publishers are at present using for the printing of their books comes from abroad is incorrect. I am informed, although I have not checked my information, that the paper they use is from home sources and, if that is correct—

Photo of Mr Charles Williams Mr Charles Williams , Torquay

I am very reluctant to intervene in this speech, but I think it would be a little difficult for me, if we pursued at any length the matter of supply of raw materials for any industry, whether authorship or otherwise.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

I quite accept your Ruling, Mr. Williams. I was not proposing to go into the matter at any length, and am willing to leave it where it is, having expressed the point in connection with the proposal which the Chancellor actually laid before us, and which I support.

I now come to the relief which is being given in the current Budget as to E.P.T., and the promises for the future in the matter of the development of industry, agriculture and research. In regard to those, I do not propose to make any detailed observations, but will confine myself to this general observation. It does not, of course, escape the attention of myself, or of my hon. Friends who sit with me on these benches, that these proposals are a distinct benefit to private enterprise in this country, but we recognise the overriding necessity of restoring British industry after the war, and that, as soon as possible.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

Certainly. The reasons for restoring industry are, first, in order that the trade and finance of the country may improve and, equally, that unemployment may be prevented in the future. When I say industry I also include agriculture. That is the overriding consideration and nothing can be more important than that there should be capital available in the country and, still further, that research should be pursued by every means in which the inventive genius of the people of this country can be utilised. Therefore, for my own part—and I think I am entitled, in this matter, to speak, at any rate, for the great majority, if not for the whole, of the Party behind me—I not only acquiesce in but welcome the proposals which the Chancellor of the Exchequer laid before us yesterday. I welcome them most heartily, believing them to be of great advantage to the development of the country in the future. But I do so on one condition. That is that when the time comes, as it will come later, for the Chancellor to consider the other factor in industry, the human factor, when he comes to consider the desirability of so educating the worker that he may reach his highest skill, and of so protecting his health that he may be at his maximum strength and capacity, of so safeguarding him from unemployment and from the deteriorating effects of unemployment—that when the right hon. Gentleman comes to those questions, which are broadly those envisaged in the Beveridge Report, he will take an equally generous view of the situation. I also hope that Members sitting on the benches opposite will take the same view on that as I take on this matter, namely, that they are prepared not only to acquiesce in them, but to welcome them.

I have no desire to keep the Committee at any great length and I have virtually finished what I have to say. I will only add that the Chancellor of the Exchequer was careful yesterday to point out that he was not merely the custodian of the purse of the State, but was concerned intimately with all the finances of the country as a whole. I was very glad to hear him make that statement. I have made a number of speeches on finance in different parts of the country during the Last 25 years and I think there has rarely been an occasion on which I have not emphasised that essential point, because the State, after all, is only that part of the country as a whole which it has been decided to bring under the heading of corporate action. Behind the State lies the country, and the State can only be really prosperous if the country is prosperous. Therefore, I am very glad that the Chancellor emphasised, that he took the whole finance of the country for his province, and did not confine his attention to that part of it which is the Budget of the State. May I, in congratulating him on that statement, also congratulate him and his predecessor on this White Paper, the "Analysis of the Sources of War Finances," from which I have already quoted.

We owe a great debt to the two Chancellors of the Exchequer and, of course, we all know that we owe a great debt to Lord Keynes, the man who originated the idea. I find a mine of information in this current Paper, which I have only had time to read cursorily, since it was not available for our perusal until yesterday. Though it would be an exaggeration to describe it as a breezy little manual, yet, I think, it is even better this year than last, and will be of great benefit to us, to the people of this country and also to the peoples of other countries who take the trouble to look into it. I thoroughly support the Chancellor in taking this wide view of his responsibilities, and I hold that only in so far as he does that, and recognises the wide field over which his mind and those of his officials should properly roam, will he reach the full stature of the exalted office to which he has been called.

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

It has been my privilege on previous occasions, in connection with Budget Debates, to follow my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and I have also had the experience of sometimes seriously differing from him in the views he has put forward. It is, therefore, with the greater pleasure that I can say to-day how thoroughly I agree with the bulk of the remarks he has just offered to the Committee, but, perhaps, he will allow me, as an old friend, to say that, as he was speaking and as my memory went back to his speeches—at the time when he occupied the distinguished position in the Treasury—in support of Lord Snowden—then Mr. Snowden—I wondered if the halo which, in fact, I have seen growing round his head for the last few years, was not now complete and that he was really acquiring a white sheet as well. I say this because I find my right hon. Friend putting forward views regarding the expansion of trade and avoiding any kind of currency contraction, and proposing a number of measures which I have heard him deal with rather differently in days gone by. However, none of us should be held responsible, as I think the Prime Minister has said, for our speeches in the past, and I welcome the fact that my right hon. Friend has become such a convinced supporter of the necessity for expansion and the avoiding of any possible repetition of the mistakes that occurred after the last war.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

I should be much obliged if my hon. Friend would send me some of those speeches to which he has referred, because I have no recollection of them. If he would send them to me, I should be very interested to see what I did say, because I do not think I said anything different in them from what I have said to-day.

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

In any case the right hon. Gentleman has every excuse because he was then in an official position and speaking for his Government while he is now completely free.

It is customary to say something complimentary about every Budget speech, but I think all will agree that the speech we heard yesterday was an extremely lucid exposition of our financial situation and we are genuinely indebted to the Chancellor of the Exchequer for a very explicit, and at the same time very clear, statement of how we stand. He told us that we were meeting the expenditure of the past year to the extent of something like 50 per cent. by means of taxation. I think it might be said that his speech was in two phases—gloomy and gay. So far as it was gloomy I think he was right to be gloomy and perhaps the Committee will not think it unwise if I say a further word on that aspect of our financial affairs.

It is true that we are raising 50 per cent. or thereabout of our expenditure by taxation, but it is equally true that we have added something like £2,800,000,000 to the National Debt in this last year, which is something like £60 per head of the population. Our National Debt is now something like £20,000,000,000, and this means that every man, woman and child here is carrying a debt of about £430. Some people will say "That does not worry me. I have nothing but my wages or my salary. I do not have to pay any of that." Probably pay-as-you-earn taxation will have caused people to adopt rather a different attitude to that question of personal contribution to taxation. At any rate, I hope the figures my right hon. Friend gave of borrowed money will have one good effect. I hope they will stop the silly cry that goes round the country from time to time, and for which perhaps certain Members of Parliament are not without some share of guilt, that if we can afford to pay £14,000,000 or £15,000,000 a day to run the war we can easily afford this or that or the next thing. The sooner that sort of idea is sat upon so thoroughly that it cannot be repeated, the better. We are not affording £15,000,000 a day. We are merely running into debt. It may be a very fine achievement to raise 50 per cent. by taxation, but do not let us ignore the fact that at the same time we are adding enormously to our debts and pledging the future to a very large extent.

Photo of Mr Arthur Woodburn Mr Arthur Woodburn , Clackmannan and Eastern

I take it that the hon. Gentleman is not meaning to imply that we are running into debt to the extent of £14,000,000 a day. It is only a proportion of that which is debt. In addition to the money that is being spent on the war, I think he will agree that the people have seen a great national effort for war that they have never seen for peace and they might justifiably take the view that it ought to be done for peace.

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

I am not in disagreement with anything the hon. Member said but I did not make the statement that he has suggested. I stated that the argument that because you have to spend enormous sums on the conduct of the war you can spend enormous sums on any kind of project in peace-time is erroneous.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

Surely my hon. Friend draws a distinction between external and internal debt.

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

I hope to come to that aspect of the matter in time. I think my hon. Friend knows quite well that I agree with him.

The right hon. Gentleman the Member for East Edinburgh also referred to the Chancellor's statement regarding allowing the price level to rise still further. I appreciate that allowing it to rise four or five points will affect a good many people and particularly those on fixed incomes who can least bear it, but I gather that the right hon. Gentleman the Member for East Edinburgh thought the Government were wrong in allowing this increase to take place. I do not hold that view. I am afraid you cannot allow earnings to steadily increase and at the same time, by taxation, keep the price level down. That would be dangerous. If you carry it too far, you get into the inflationary spiral whether you like it or not. I agree as to the disadvantages and hardships, but the time has come when it is essential to allow the price level to rise to some extent unless earnings are fully controlled. That is one of the few points the right hon. Gentleman the Member for East Edinburgh made with which I do not entirely agree. I think it will be a very good thing if the country takes a warning from what the Chancellor has said and realises that if wages and salaries are allowed to go up without control prices are almost bound to follow and indeed might soon take first place in the race.

I come now to the point that my hon. Friend the Member for East Aberdeen (Mr. Boothby) raised. It is one of the good points about our financial situation that our debt is almost entirely internal. The process of increasing taxation and particularly heavy taxation on the larger incomes has resulted in nothing more or less than the evening out of wealth. The process has been going on for a long time. It has been accelerated naturally in the period of the war at a very rapid rate and the result is that now there are no so-called rich, I suppose we are all poor. You can call it evening up or evening down according to which way you look at it. From the nation's point of view, there is a good deal to be said for the process. The result may well be beneficial. It may make the provision of new capital in the days of peace and the operation of enterprise and initiative that we want to see perhaps more difficult but apart from that there is no doubt that, economically as well as socially, the evening of incomes is probably of benefit to the country in increasing consuming power.

Our first contribution as I see it to the establishment of economic security and peace after the war is to try to pat our own house in order. I hope we shall have an opportunity of discussing the international plans which have been made for fixed exchanges between the nations which are very essential. But I agree that this is probably not a very suitable time to discuss these matters. I have read them all carefully and as far as I may venture any opinion I am more attracted by that of Lord Keynes than the others. But they are all groping for the same thing—for the solution of a difficult problem—and that is how we are to facilitate trade between the nations after the war and how we are to secure that a system of financed barter—for that is what it amounts to—can be carried on without disturbance and with advantage to the different countries of the world. But while it is our business to do our utmost to get an international system working, our principal contribution in the early stages after the war is to put our own affairs here in order. If we are to get prosperity here we must have prosperous industry based on increased consumption from an expanded consuming power within our own country. It means we must have the most up to date machinery, the best technical education and workmanship, the scrapping of obsolete plant and thus ensure that the margin that must be exported can be offered on the most competitive basis possible.

In the last year in which the figures were published before the war we had an adverse balance of trade to the extent of £400,000,000, and our adverse balances had been growing for some years previously. I do not know what our position will be after the war but it is clear that we shall have to import a large amount of food. Our agriculturists have raised production from 37 per cent. of our pre-war food consumption to 72 per cent. of our war-time requirements and we owe them a wonderful debt of gratitude for their efforts but we shall still have to import food after the war. The difference between the value of our total imports against our exports in 1937 was met to the extent of £220,000,000 by interest from investments abroad and to the extent of £100,000,000 by shipping and other earnings. The first of these sources of revenue has gone and the second must be a lower figure—possibly much lower—and therefore we are going to be faced with a gap whatever its total may be which we cannot fill by means of accumulated balances or legacies from our predecessors. We have to buy what we require in the way of raw materials and food by the export of our products, and these products have to be produced in competition with the rest of the world, much of it working probably on a lower standard of living. No one is going to take any token money or anything else in exchange for the imports that we want but only goods which we must produce in competition with other people. The alternative of cutting down imports would be difficult indeed. We cannot cut raw material imports. We want more. They are the basis of the prosperity of our industry and of our exports. Therefore if we are to secure purchasers abroad for our products, it means that we must have the most efficient industry, the best possible standard of living and conditions of wages, the best housing, the best technical education and so on.

All these things can only come from a prosperous industry. Indeed, if we have a prosperous industry they will come of themselves. Everybody wants social amenities and the suggestions that are put forward in proposals like the Beveridge Report, but it is only by a prosperous industry that we can get them without any difficulty. There is no doubt in that connection that the statement of my right hon. Friend the Chancellor is very helpful. Industrialists undoubtedly in the last year, and in the last few months especially, have been very worried about the position because they have not known where they would stand after the war. They have a right to know to the extent that it is possible to let them know. They are as anxious as the State must be to put their house in order so as to secure as soon as the men come back the greatest amount of employment and prosperity. I agree with what the right hon. Gentleman the Member for East Edinburgh said, that the Chancellor has taken a wide view not only of the finances of the last year but of the outlook for the country in the future. Nobody could complain that the whole canvas has not been filled in at this stage. It would he unreasonable to expect it, but the measures my right hon. Friend has indicated show that he realises the necessity of giving confidence to industry as to how it will stand in the days to come.

There are two matters, however, about which I thought my right hon. Friend was a little hesitant, although I cannot say that I expected anything else in the circumstances of to-day. The position of the Excess Profits Tax after the war must concern every industrialist. He wants to know as soon as possible when he will be able to have a chance to earn something for himself as a recompense for extra effort. He has also to consider the extent to which the fact that he has not been able to earn any surplus profits in his industry during the past few years has prevented him putting back into the business those reserves which are needed for new machinery and new outfits which the post-war industrial set-up will certainly demand.

Photo of Mr Daniel Lipson Mr Daniel Lipson , Cheltenham

Is my hon. Friend correct in saying that manufacturers cannot make any profits?

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

I think my hon. Friend knows the conditions of the Excess Profits Tax as well as I do. I also cannot quite understand my right hon. Friend's diffidence on the subject of motor car taxation. He spoke about being willing to have the whole matter put to him before coming to a decision. I do not blame him for not knowing this subject thoroughly. I do not pretend to know it, for I am not interested in the industry and am not an expert, but I am fairly certain, as a Member of Parliament, that the matter has been put before Chancellors of the Exchequer for at least the last ten years. Though it may not be in the exact form my right hon Friend expects to see it now, he rather gave me the impression that the Treasury were hearing of this proposal for the first time. Motor car manufacturers and the trade have been pressing it for years, and if there is anything to be done I hope that my right hon. Friend, if he finds that the arguments are sound, will be able to put a new basis of taxation into force without delay so that this very large industry will be able to play its full part in trade expansion after the war.

Again, the State is refunding to the owners of ships which have been lost sums of money to compensate them for their losses, and that is perfectly right and proper. I do not suggest that it is the business of the State to bring undue pressure on shipowners as to how they should use their money, because they must be the best judges as to when to build ships to replace those that are lost. I do not think, however, that it would be harmful if my right hon. Friend and the Government would make it clear to shipowners that it was hoped—let us put it no higher than that—that the money would be used for the replacement of ships and that as soon as is reasonably possible. We want to get the British Mercantile Marine as active and energetic as possible after the war. A great many ships will be required for special trades, and without applying undue pressure I think the Government might well say they hope that that will be the course followed.

The efforts of future Governments must be towards expansion and not contraction of credit. We must not repeat the mistakes we made after the last war. The Government will have to encourage every kind of new enterprise, new ideas and new initiative by the individual. That means that they must enlarge as time goes on the excellent indications which the Chan- cellor gave yesterday of their desire to help industry after the war and remove controls as soon as they can. We will have to provide the best possible technical skill, equipment and education. We have not had them in the past, and we have been behind others. That will require a good deal of State assistance. We want to maintain and improve our own standards of life, and for economic as well as for humanitarian reasons, we have to do all we can to improve the standards of the peoples of other nations and thus increase their prosperity and the consuming power of the world. On a prosperous industry we hope to have a firm foundation upon which, after the horrors and privations of these terrible years, we may help to build that structure of world peace, freedom and human progress which I believe lies ahead.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

The hon. Member made references to industry desiring to know what will happen after the war. Is he speaking for the employers or for the workpeople, because the work-people have an entirely different idea as to what the conditions should be after the war than the employers have?

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

My hon. Friend may take it that when I am speaking of industry I speak from both the employers' and the employees' points of view. Contrary to my hon. Friend's view, I would tell him that, as far as I know industry, the views of the people in industry, both employers and employees, are on exactly the same lines. If I may do so without offence, I would apply to my hon. Friend a little couplet which is going round the country: The King of Korea is gay and harmonious; He has one idea, and that is erroneous.

Photo of Sir George Schuster Sir George Schuster , Walsall

I wish to start, like everybody else, by expressing my great appreciation of the speech we heard yesterday from my right hon. Friend. If I am brief in my congratulations, I hope that my right hon. Friend will not take it as a measure of my appreciation; it is due to the fact that I have to catch a train. I regard his statement as the most constructive, in a realistic sense, to which I have listened since I have been a Member of the House of Commons. There was not a phrase in it which had not, obviously, been the subject of close thought, and not a phrase that owed its force to mere rhetoric.

I want to deal with the four main topics that seem to me to stand out from the picture as it has been presented to us—first, the role of the Treasury; second, the immediate proposals; third, the shape of things to come; and fourth, the country's need. As regards the role of the Treasury, I only want to say this. I believe that my right hon. Friend has a chance to become one of the most memorable Chancellors. He has taken over at a period of what I might describe as a climacteric change in our conceptions of the role of public finance. We no longer look at finance as the master; it has become secondary. We realise that what we have to consider is the fruitful development and utilisation of the whole resources of the country. I very much want to see the Treasury built into a proper place in the structure of the Government as representing the Government's responsible adviser, which pulls together all the threads of economic policy.

There are many things one would like to see. I would like to see a strengthening of the establishment of the higher posts in the Treasury. The higher officials in the Treasury are fantastically overworked. The Treasury has been a very stern applier of its own principles of economy. I would like to see a recognition in the Treasury of the importance of an understanding of the industrial position of the country. The Treasury has had some very good financial advisers, and I am sure that my right hon. Friend feels now what a loss the resignation of Lord Catto will be to him. I want to emphasise the point that the Treasury is now concerned very largely with industry. The times are changing. The role of the City has too long dominated most of our conceptions. That is, perhaps, a strange thing for me to say because I have spent a great deal of my time in the City. The City cannot save us in the difficulties that lie before us, nor can any schemes of international monetary arrangements or international credit, important as they are. All these things will mean nothing if we cannot put our own house of industrial production in order.

Turning to the immediate measures I have very little to say. I hope to say a word later on the question of wages and prices to which my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) referred. Otherwise, I think that the Chancellor has been very wise to keep our helm lashed to the sound course which has served us well. I am glad that he gave a word of thanks to John Citizen for the part which he has played in the success of our financial arrangements. John Citizen in this country leads the world in his integrity as a taxpaper. He has no equal. A word of praise is also due to all those thousands of voluntary workers who have helped the success of the National Savings campaign.

When I turn to the shape of things to come, so far as Government measures are concerned, as indicated by my right hon. Friend, it seems to me that the shape was all right, but I would have liked to see a little bit more of how it was to be filled in. Generally speaking, however, it bears out what I have already said, that it represented an exceedingly constructive and helpful statement. The research proposals seem to be generous, adequate and welcome. I was particularly interested in what my right hon. Friend said when he recognised that the three processes of original research, development and commercial application have all to be taken together, and that if any one fails the whole fails. I welcome that statement very much.

I wish he had told us a little more of what he is discussing with his colleague the Minister of Fuel and Power in regard to plans for helping the utilisation of oil and of our coal resources. Such information as he gave us referred mainly to the easing of the taxation position. Perhaps at some time or other we may hear from the Government that they are prepared to take a lead in establishing large-scale plants for developing some or these processes. I do not want to press that point any further now, but it seems possible that if we leave the matter entirely to private industry we shall not get progress at the rate which the interests of this country demand.

As to whether the industrial taxation proposals will go far enough I prefer to reserve my judgment. The 20 per cent. initial allowance will be a very great help, but I wonder whether it goes far enough. Replacement costs after the war for buildings and machinery will probably be at least 50 per cent. higher than the book value of the assets, for which provision will have been built up by way of past depreciation. There will be some difficulty in that respect. I want to put in a word here too on another topic, and to ask my right hon. Friend to give special attention to the subject of double taxation, which does, in various ways, greatly affect our strength in the export trades.

But the main question which we have to ask ourselves is whether the mere removal of taxation obstacles will be enough to turn the activities of this country into the right direction. It will be a very great help, but I think it will not be enough alone. We have to remember the vital importance of allocating a sufficient share of our national resources to the re-equipment of our industries in the early years after the war, when everybody will be busy and it will be possible to sell any kind of rubbish that can be produced. We must not be led astray, in those early years. We must put enough aside so that we shall find our industry first-class in its equipment when we enter oh the difficult period of the normal times thereafter.

I do not want to be critical as regards the details, or to suggest that the proposals of my right hon. Friend are not generous. The important thing is the spirit shown by the Chancellor in what he said, and his conception of the objective at which we have to aim. I was left with the conviction that, if he could be convinced that what he was proposing was not sufficient to achieve his objective, he would be quite ready to consider other proposals. And that brings me to my fourth point, the material used, since the main objective must be the development of our industries in the national interest.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

And not for private profit.

Photo of Sir George Schuster Sir George Schuster , Walsall

That is the point I was making. My right hon. Friend has not put forward these proposals for the sake of giving a bonus to any private individuals. Certainly, so far as I have asked for any of them, that was not in my mind. We do not want to make a few rich men richer. We want to establish the national prosperity of this country, and it must be properly distributed. It is up to British industry, when those obstacles are removed, to take advantage of the opportunity provided, in the spirit that industry has to render a national service. I am glad to see the encouragement of free enterprise, nevertheless, I feel that we shall still, for many years to come, require also the organising and directing power of the State representing the community to guide our activities along the right lines. I would say to leaders of industry that our task—and I can speak perhaps as one of them—is not to resist that kind of directive control, but rather to organise ourselves so that we, in co-operation with the Government, may see that it is exercised wisely, in an expansive way, and not in. a way that will hamper free initiative. Industrial leaders have to be progressive and efficient. Otherwise, public opinion will demand, and rightly demand, new men and a new system.

It is not only leadership which will see us through; there has to be good work all round. I hope that the hon. Member for West Fife (Mr. Gallacher) will take in a good spirit what I now want to say on this matter. We have had a lot of talk about wages and prices. So far as I can exercise my own judgment, I believe that my right hon. Friend has, in a very difficult position, taken the right course. Otherwise, I see us moving to a terribly difficult position, as subsidies increase and we keep prices down. If that were to get too wide, we might well get a situation which it would be almost impossible to handle when we tried to float off again into normal times. I venture therefore to say that I support the judgment of my right hon. Friend in this matter. But I wish we had not had quite so much talk about wages and prices. The relation in which I am interested is earnings and production, because that is the real relationship. I want to see the workers earn more and be equipped with tools which will enable the human factor to produce as much as it is able to produce.

I want to see the workers develop their highest earning power. Above all, I want to remove the fear that labour-saving machinery will mean cutting piece-rates or turning people out of jobs with no chance of finding them again. I am sure that nobody on this side of the House wants to create a state of affairs in which, whenever earnings rise we shall catch up on the workers by raising prices, so that they will not have any real benefit; but we must have it realised that the only basis for higher earnings is higher production. We cannot expect a wholehearted "pull together" if we cannot create confidence that the products of better machines and better human work will be fairly divided in the national interest.

The essential thing is that everybody shall understand the realities of this situation. What each section of workers can get out of the pool, depends upon the size of the common pool, and no section can demand an unfair share out of the pool without damaging other sections. We want to see earnings as high as possible. Do we want the miners' £5 a week that they have got, to be really £5 of genuine purchasing power? Of course we do. Do we want to support—

Photo of Sir George Schuster Sir George Schuster , Walsall

I hope the hon. Member will not interrupt me. I am sure that I am saying things with which he will agree when he reflects.

Photo of Mr Samuel Silverman Mr Samuel Silverman , Nelson and Colne

The hon. Member must not suppose that he is the only man who reflects.

Photo of Sir George Schuster Sir George Schuster , Walsall

If the hon. Member wants to interrupt me I give way.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I am in full agreement with what the hon. Member has been saying about a pool, provided we do not have a pool only for a bunch of profit-making employers.

Photo of Sir George Schuster Sir George Schuster , Walsall

If my hon. Friend studies the distribution of national income as shown in the White Paper, he will see that there is not very much more to be got out of the pool at present on the top level. Perhaps I may go on with the series of rhetorical questions that I intended to put. I was asking whether we wanted the miners' £5 to be a genuine £5 of purchasing power, and I say that we do, and so do hon. Members on the other side of the House. Do we want to support a larger number of well-paid workers in education and other non-productive national services? Of course we do. Do we want shorter hours and longer holidays with pay for those who are engaged in production? Of course we do. Do we want those who are old or sick and cannot work, to be kept properly? Of course we do. Do we want to be able to produce the right goods at the right prices, so as to be able to keep our place in the export market? That is something that we must want above everything. We want all those things, but we cannot have them unless every man and woman pulls together.

My right hon. Friend was perfectly right in painting a sombre picture. We shall be up against most terrible difficulties, and there is going to be no room for the shirker in this country. It will be a case of "all hands on deck." I am grateful to my right hon. Friend for having stressed that aspect of the matter and for having shown to us the way in which we can overcome that difficult situation. We must not be daunted by the prospect, but we must realise what it is and what it means. There are lots of slogans going round now. It is very nice to be able to say that difficulties are opportunities. They are; but also they are difficulties, and we have to face them. On this side of the House, in the time to come, we shall want freedom for initiative. Hon. Members on the other side want also to preserve some measure of freedom. We can have freedom only if we use our freedom rightly. The measure of our freedom will be the way in which we use it. If we tackle our problems in that spirit we shall have a chance of doing something not only for ourselves but for the world at large. If we do not do so, then, if I might quote Shakespeare, all our future will be bound in shallows and in miseries.

Photo of Mr Oliver Simmonds Mr Oliver Simmonds , Birmingham Duddeston

The whole of the Committee expected from the Chancellor an able and lucid speech. In fact, we had much more than that. We had one of the most statesmanlike pronouncements on the financial and economic problems of the State to which hon. Members have listened for many a long day. Without comparing my right hon. Friend with the Noble Lord in the other place, I would say that the Chancellor of the Exchequer has become the practical Minister of Reconstruction in this House. He has done more than any of his colleagues to lay the foundation bricks for the reconstruction programme of the Government.

It has been rather the tradition for the Chancellor of the Exchequer, particularly in relation to trade and industry, to give out his plans for the coming year in penny packets. I think that has had most unfortunate results because trade and industry have never been able to see a far enough horizon and plan accordingly. Yesterday my right hon. Friend unfolded himself upon the future prospects, and I would like to congratulate him and his colleagues also that they have declared their hand on so many important issues in connection with post-war and financial reconstruction. I would like to follow some of the wise observations which have been made by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne). He spoke of the adverse balance that faces us after the war. Without going too much into detail, I would recall to hon. Members that at the outbreak of the war we were virtually balancing our external payments, but even then, on two or three occasions in the '30s we fell behind-hand to the tune of some £40,000,000 or £50,000,000. But after the war, when this disinvestment of which my right hon. Friend spoke yesterday has gone its full course, the best estimates seem to be that even if we restore our export trade to its pre-war level we have still £200,000,000 to make up. We have to find that £200,000,000 or, as my hon. Friend the Member for Kidderminster warned us, we have to reduce our imports accordingly.

This £200,000,000 adverse balance of payments is thus a Sword of Damocles over our visions of the post-war period. There can be no Beveridge, there can be no family allowances on any adequate scale, there can be no increase in old age pensions, unless, first of all, we meet this issue. It must be met by the initiative of our manufacturers and traders, and they can meet it in two ways, not only by developing new markets, but also developing synthetically new products, if necessary, which will obviate the necessity for certain imports. It is thus important that they should be supported on both those lines. Within any foreseeable period after the war I think it will be manifest to all hon. Members that we shall have to use private enterprise as our agent in finding this £200,000,000. Hon. Members opposite may have other ideas for the organisation of the national economy in the distant future, but I think that everyone will agree that for the moment we have to utilise the tools that are at hand. Thus, I trust there will be no objection on the part of hon. Members opposite, whatever views they may hold for the distant future, to supporting the agent which we have with which to wage this struggle. But the agent can never succeed if there is uncertainty and lack of clear direction.

What does comprise private enterprise to-day? Is it and Morris and Courtaulds and Austin? Yes, it is all these, but in fact they are only a small part of private enterprise. It may surprise some hon. Members to realise that only one-third of the numbers employed in industry are in undertakings where there are over 1,000 workers. On the other hand, even if we omit, as I think we should do, the smallest firms employing up to 10 people, no less than 50 per cent. of our people are employed in undertakings with less than 600 workers. Not only are these the middle stratum of British industry, but they are the backbone of industrial Britain. Above all, they represent half of the workers in Britain, and it is above all that fact that this Committee needs to bear in mind. In what shape will this middle stratum of trade and industry find itself when called upon to play its vital role in what I hope will be a great national exploit, the quest for this £200,000,000?

This is, primarily, an economic and not a political problem, and I am frankly seeking here to avoid all party controversy. The health of the middle stratum of industry should be a particular care of hon. Members opposite on account of the vast numbers of people employed therein. Upon the welfare of this middle stratum depend the lives, prospects and prosperity of millions of workers. The right approach to an inquiry of this kind, as many hon. Members will know, is through a system of sampling, a science which I am glad to say has recently received some considerable impetus. By this we mean that we select a sample of a manageable size, analyse its characteristics, determine them and then see, by wider application, that these factors which we elucidate are in fact common to the whole.

How shall this sampling proceed? With the middle stratum in industry no city is more closely identified than Birmingham, proverbially the city of a thousand trades. The typical industrial organism in Birmingham is not a great public company, but the smaller and more personal unit, usually founded originally by some bright craftsman at the bench, who put his initiative and brain and savings into his little business, until with effort and care it has grown up into an organism employing several hundred workers. That is the Birmingham of today, and of the 12 Parliamentary Divisions in Birmingham, I can say that none is more typical of the middle stratum than the Division of Duddeston which I have the honour to represent. It is situated hard by the centre of the city. It is composed of some 200 medium sized factories, with the workers employed therein living round them. So I have sought, as my sample, to find out what is the situation in these factories, and what are the prospects of those workers. I have been assisted here by some 30 companies in my division.

What do we find? The answer is clear and unambiguous. They are in good heart, but they lack the financial strength for the day—for facing this postwar issue of the £200,000,000 sterling. Thousands of letters in the Press illuminated with much detail, have, over the last few years, drawn our attention to the adverse effects of E.P.T., and have claimed that this House, certainly not by intent, but by mischance, perhaps even by oversight, has dealt harshly with this middle stratum of industry and undermined its strength. As we analyse our sample, let us try to detect how much truth there may be in the assertions that have been made in these letters.

Every hon. Member will be aware that there is strong justification for fixing a tax effectively limiting the retained profits on war contracts to a reasonable figure, but in the case of the middle stratum in industry, does E.P.T. do this? That is a question I would ask the Committee to observe. Surely, it is an unexceptionable proposition that the financial reward on war contracts should be in relation to the magnitude of the service rendered. The service rendered is expressed industrially by turnover, the financial reward is, substantially, the standard under E.P.T., fixed basically with reference to the profits of certain pre-war years and subject to current Income Tax. In the case of our sample of some 30 companies, what do we find this relation to be—the relation of standard to turnover? Of the 30 odd companies under review several have standards under 2 per cent. of their annual turnover. In the case of no less than a quarter of these companies the percentage ratio of the standard to, turnover is less than 4 per cent. Equally, in the case of a quarter of the companies the percentage ratio is over 10 per cent. These are the lucky ones and the excep- tions, necessarily, but let it not be assumed that they are the ones that have rendered the greatest service to the nation. They are probably the companies which had some non-military work in times of peace, and have carried forward, without making any particularly different contribution to the national economy in the time of war from what they were making in times of peace. But what in fact does that 4 per cent. figure mean? When Income Tax has been paid, when war damage premiums which hon. Members will recall are not a charge against revenue but against capital have been deducted, and when various items effectively of a capital nature but disallowed by the Revenue, have been deducted, the retained profits cannot well exceed 1 per cent. of the turnover. No business can remain healthy on that basis.

In all good undertakings profits, as hon. Members are well aware, are to some extent ploughed back into the business. In the case of the middle stratum of industry, this is particularly true, and referring to our sample, in the case of four companies I find that the whole of the profits in the three pre-war years were ploughed back. Of the whole of the 30 companies, well over half of the profits were ploughed back. It is abundantly clear that when we fix profits at an artificially low figure, we are not so much preventing large dividends for shareholders as robbing the companies of their very life-blood. In effect, the incidence of E.P.T. as regards these ploughed-in profits has been aggravated, as the hon. Member for Kidderminster observed, by the increased cost of equipment and labour.

Photo of Mr Richard Stokes Mr Richard Stokes , Ipswich

When speaking about these companies which have had their ploughed-in profits disallowed—I am familiar with the point—could the hon. Member tell the Committee whether, in his examination of these accounts, he has found that the cost of maintenance has gone up, or has remained approximately the same?

Photo of Mr Oliver Simmonds Mr Oliver Simmonds , Birmingham Duddeston

I shall be very happy to discuss that matter with my hon. Friend if he wishes to do so, and to elucidate any point to which he desires to refer subsequently, but I cannot see that it is quite relevant to the point I am now trying to make. The Chancellor said yesterday that wage rates had in- creased by about 40 per cent. That means that, for a given some of money—and the standard is a sum of money—these companies can purchase less new machinery than they could have purchased in the pre-war period. Thus, in effect, E.P.T. has sorely reduced the power of an undertaking to modernise and develop, even judged by pre-war standards, and this at a time when Ministers are calling upon industry, with one voice, to reconquer the export markets. I can sum up my analysis by observing that by the system of E.P.T. we shall leave this great middle stratum of industry gravely lacking in adequate reserves to meet the coming tasks. Hon. Members may ask me why I have compared standard to turnover and not to capital employed. I would say that the degree of exhaustion should be compared with the reserve. The degree of exhaustion has nothing to do with the capital, which is some almost fictitious figure to represent the assets in the business, which have been written down for a period of years. Therefore, I claim that turnover is the more proper and exact figure to take when you are endeavouring to find out how healthy these businesses will be after the war and whether their reserves will be adequate.

I was delighted that the Chancellor decided to help the smallest companies by his grant of an extra £1,000 towards their standard. That was a splendid gesture. But, excepting that—and, frankly, such a contribution does not enter into the case of the companies of the middle stratum at all—the Chancellor, as far as I can see, did not touch this aspect of the problem, as it affects the immediate postwar period. As analyse them, none of the concessions which he made will materially help companies to restart their peacetime export machinery until three or four years after the armistice. Those first two years are the vital years. It is most important that we should see that the middle stratum of industry, in its quest to do its part for this £200,000,000, should not be placed in this difficult and embarrassing position, caused, as I think, largely by lack of foresight in the past. We must not allow this situation to continue.

What can be done? The Chancellor has said that he must retain too per cent. E.P.T. in war-time. As to whether that is vital or not, we all have our own ideas, but it is a strong pyschological point, I have no doubt. I would make this sug- gestion, which is a small and simple one. Let him agree to a reasonable minimum below which the standard shall not be allowed to fall in relation to the turnover. The aim would be to assure to each company, between now and the end of the war, some additional financial reserve of strength. I think that a limit should be placed on the amount of profit that could be distributed by companies. Such a suggestion is not only fair, but it irons out the difficulties of those companies which have a minimum standard, and it is simple, which is the essential factor in any change. It would relieve those undertakings which at the moment are subject to a monstrous injustice, and it would help to put them on their feet. This will be a gracious act to those companies in the middle stratum, comparable to the £1,000 which he has granted to the smaller companies.

One passage in the Chancellor's statement yesterday particularly struck me. He said: If we are to avoid a drastic curtailment in our volume of imports such as might threaten our standard of life and gravely prejudice our prospects of active employment, it will be indispensable for us to increase our exports, and recapture some of the trade which we lost in the inter-war years. That will he a matter of life and death to us." —[OFFICIAL REPORT, 25th April, 1944; col. 666, Vol. 399] I would think that, in the light of the analysis which I have made and the sample which I have taken, which can be backed up by other Members, from experience in their own constituencies, it remains for the Chancellor to do something for these companies in the middle stratum, so that they may play their full part in this great post-war quest. He has yet to round off the proposals which he made yesterday by putting these companies in a more vigorous and heartened condition to engage in that struggle.

Photo of Mr Francis Douglas Mr Francis Douglas , Battersea North

The Chancellor may certainly count himself fortunate that he is able in the fifth year of the war to introduce a Budget which makes no increase in taxation. That is a unique position. Not content with that, he has actually gone to the extent of making some remission, to which the hon. Member for Duddeston (Sir O. Simmonds) has referred, in the Excess Profits Tax, and a promise of more remission of taxation to come. It was not surprising that there was no increase of taxation in the Budget. The framework of the national finances was so altered by the introduction of pay-as-you-earn that it became impossible to alter the rates of Income Tax in the Budget, because the financial year has already commenced, and if an alteration had been made, either in the rate of Income Tax or in the abatements or allowances, the whole structure of pay-as-you-earn would have been upset. It would have been extremely unfair, if Income Tax remained at its present level, for any increase to be made in indirect taxation. Therefore, I think, the Chancellor was, in any event, forced into the position that no appreciable increase in taxation could be made in this Budget.

Let me turn to the general proposition which the Chancellor laid down for the future, that he intended to adjust our system of taxation so as to encourage production. I accept that as a legitimate and proper object of public policy, although many proposals which are made for that purpose are not in the end calculated to effect it, and are in many instances directed to the protection of particular enterprises, with a detriment to the national economy as a whole. They will not bear economic analysis. But it is a proper object of fiscal policy to encourage the greater production of wealth in this country, and it may be that the relief which is given to the smaller enterprises which are subject to the Excess Profits Tax will have that effect, because it will give a greater incentive to those who own and control them to extend and to develop their enterprise, because they will get a greater degree of reward out of it. It might also be defended on an entirely different line of argument, which was not mentioned by the Chancellor but which deserves cow sideration. That is, that some degree of relief to enterprises of the smaller dimensions may help to turn the trend towards concentration and trustification of industry which is only too apparent at present. If the concession which the Chancellor has made were to have that effect, I should certainly welcome it as a healthy reversal of national policy.

But when we consider this problem of the encouragement of national production by the alteration of our fiscal policy, I would ask the Committee to consider the economic basis of this proposal. The concession which has been promised by the Chancellor is in respect of depreciation of plant, equipment, and buildings. The major part of it is a promise of 20 per cent. depreciation allowance on new plant and equipment in the first year after they are installed. That represents, as I understand it, an acceleration of the depreciation allowances to which the owner will in the end be entitled, but not an increase in the ultimate total. It means, in effect, that the State is going to subsidise, to the extent of 20 per cent. or to the extent of the difference between the 20 per cent. and the amount of allowance which would be given under the existing system, the installation of new plant and machinery. The total amount involved in this, during the first years immediately succeeding the peace or armistice, may be in total an enormous figure. There is no question that repair, replacement and so on have been, during the war, slowed down, and in many cases stopped, except in those industries which are engaged upon production which was necessary for the war effort. The arrears of replacement in other industries must be of extremely large dimensions, and, therefore, the concession which the Chancellor has promised in this respect must involve a very large ultimate charge upon the Exchequer.

Where is the money to come from in order to meet this deficiency of revenue? It is perfectly clear, from the statement which the Chancellor has made, and I think it must be evident to every hon. Member of the Committee, that there can be no very great and rapid diminution in the amount of taxation which will be required even after the war is over. There will, no doubt, be a diminution, and perhaps extinction, of borrowing, but the need for taxation must continue to be upon a very high level. If these concessions are made in the depreciation allowances, and, consequently, in the amount of taxation which is levied upon industrial and productive enterprise of all kinds, it must inevitably follow that the amount of the reduction of taxation which other payers of Income Tax will be able to expect is correspondingly diminished. It means that the ordinary workmen and salaried employees will have to contribute towards this concession, which is given to certain classes of the population, and I want to remind the Committee of the extent to which indirect taxation has now risen.

It is an enormous tax, spread over the population, broadly speaking, more or less equally, but it is taxation not according to ability to pay, but which, from its very nature, must inevitably fail with heaviest effect upon those least able to bear it, and every concession of the nature which the Chancellor indicated will tend to retard the reduction of that taxation which is falling with so very great effect at the present moment. As I have said, I accept the general proposition that it is proper for the State to encourage production, if it can do so. I want to suggest to the Committee that sufficient attention has not been given to the foundations of policy with regard to that.

The distinction which has been drawn in the past between earned and unearned income has been very much diminished during the war. The allowance on earned income amounts now to only one-tenth, and the differentiation between earned and unearned income is now very much smaller that it has been for a great many years past. In fact, it is much smaller, if I recollect rightly, than it ever has been since the time that the distinction was first introduced into our income tax system, and that is something which calls for redress if we are going to follow the policy of encouraging productive effort. The productive effort of the worker, whether he is a manual worker, a salaried worker, or whatever else he may be, deserves as much encouragement as that of anybody else. The concession which the Chancellor has made in depreciation allowances is in respect of what are called, broadly speaking, wasting assets—plant, machinery and equipment which has got a limited life and which requires to be renewed. But let me remind the Committee that the workman or salaried worker gets his income from a wasting asset—his working life, which has only got a certain length to run—and he ought to be given the concession, and a more generous concession, in respect of relief on earned income, in order that he shall be compensated for—

Whereupon The YEOMAN USHER OE THE BLACK ROD being come with a Message, The CHAIRMAN left the Chair.

Mr. SPEAKER resumed the Chair.